Phila. Indem. Ins. Co. v. Markel Ins. Co.

• Decision Date: 05 January 2023
• Docket Number: Civil 1:20-cv-00669-JRR
• Parties: PHILADELPHIA INDEMNITY INS. CO., et al., Plaintiffs, v. MARKEL INS. CO., et al., Defendants.
• Court: U.S. District Court — District of Maryland

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PHILADELPHIA INDEMNITY INS. CO., et al., Plaintiffs, v. MARKEL INS. CO., et al., Defendants.

Civil No. 1:20-cv-00669-JRR

United States District Court, D. Maryland

January 5, 2023

MEMORANDUM OPINION

Julie R. Rubin, United States District Judge.

This case arises out of an ongoing dispute between a daycare franchisor and franchisee and their respective insurance companies, Philadelphia Indemnity Insurance Company (“Philadelphia Indemnity”) and Markel Insurance Company (“Markel”).

This matter comes before the court on Defendant Markel's Motion for Summary Judgment as to Plaintiffs' Second Amended Complaint and Defendant Markel's Counterclaim (ECF No. 94; “Markel's Motion”) and Defendant KA Broadway LLC d/b/a Kiddie Academy Pearland East's (“KA Broadway”) Motion for Summary Judgment as to Count II and III of Plaintiffs' Second Amended Complaint (ECF No. 95; “KA Broadway's Motion”). The court also has before it Plaintiffs' Response in Opposition to Markel's Motion and Cross Motion for Summary Judgment (ECF No. 97) and Plaintiffs' Response in Opposition to KA Broadway's Motion and Cross Motion for Summary Judgment (ECF No. 96). No hearing is necessary. Local Rule 105.6 (D. Md. 2021). For the reasons set forth herein Markel's Motion will be denied. KA Broadway's Motion will also be denied. Plaintiffs' Cross Motion for Summary Judgment seeking a declaratory judgment that both the general liability and the professional liability limits of insurance are available to respond to the Lewis litigation will be granted. Plaintiffs' Cross Motion as to Count II and III of Plaintiffs' Second Amended Complaint will be granted. Accordingly, the case shall proceed as to the remaining declaratory relief in Count I of Plaintiffs' Second Amended Complaint (ECF No. 37) and Counts I through V of the Counterclaim. (ECF No. 70.)

BACKGROUND

I. Procedural History

On March 12, 2020, Plaintiffs Kiddie Academy Domestic Franchising, LLC (“KADF”), Essential Brands, Inc. (“Essential”), and Philadelphia Indemnity, filed suit against Markel and its insureds, Bullocks Bright Beginnings, LLC, and Corey and Summer Bullock (collectively the “Bullocks”), and KA Broadway. In the original and First Amended Complaint, Plaintiffs sought declaratory judgment that Markel owed additional amounts toward settlement of the suit involving KA Broadway (the “Lewis litigation”), and that Markel would owe a certain amount in an ongoing suit involving the Bullocks (the “McNeel litigation”), when that suit is eventually resolved. On November 19, 2020, by order at ECF No. 34, the court granted in part and denied in part Markel's Motion to Dismiss the Amended Complaint. (ECF Nos. 5, 17.) The court dismissed Plaintiffs' claims related to the McNeel litigation and, accordingly the Bullocks were terminated as parties in this case. The court granted Plaintiffs leave to file a Second Amended Complaint. (ECF No. 34.)

On January 12, 2021, Plaintiffs Philadelphia Indemnity, KADF, and KADF's parent company, Essential, filed their Second Amended Complaint against Markel and the daycare franchisee, KA Broadway (ECF No. 37; “the Complaint.”) In Count I, all three Plaintiffs seek declaratory judgment that Markel is obligated to pay an additional $1,000,000 toward settlement of the Lewis litigation. In Count II, KADF and Essential seek contractual indemnification from KA Broadway for the amount Philadelphia Indemnity was required to pay on their behalf toward the settlement. In Count III, Philadelphia Indemnity asserts a claim for equitable subrogation against KA Broadway. Following the filing of the Complaint, KA Broadway and Markel filed motions seeking dismissal of the claims against them on separate grounds. On June 14, 2021, the court denied both motions. (ECF No. 60.)

On July 26, 2021, KA Broadway filed an Answer (ECF No. 71) and Markel filed an Answer and Counterclaim. (ECF No. 70.) Markel sets forth five counts for declaratory judgment in its Counterclaim. On May 31, 2022, Markel filed a Motion for Summary Judgment as to Count I of the Complaint and Counts I and II of its Counterclaim. (ECF No. 94.) Plaintiffs filed a Response in Opposition and Cross Motion for Summary Judgment requesting declaratory judgment that the professional liability coverage and general liability coverage limits of the Markel Policy (the “Policy”) are available for the Lewis litigation. (ECF No. 97.) On June 1, 2022, KA Broadway filed a Motion for Summary Judgment as to Counts II and III of the Complaint. (ECF No. 95.) Plaintiffs filed a Response in Opposition and Cross Motion for Summary Judgment as to Counts II and III of the Complaint. (ECF No. 96.)

II. Franchise Agreement Between KADF and KA Broadway

The Complaint alleges that, on or about November 7, 2013, Plaintiff KADF and Defendant KA Broadway entered into a Franchise Agreement under which KADF granted KA Broadway the right to operate a Kiddie Academy Child Care Learning Center in Pearland, Texas. (ECF No. 37 ¶ 9.) Paragraph 14 of the Franchise Agreement required KA Broadway to procure:

14.2.1 Comprehensive general liability insurance, including, without limitation, personal injury, premises liability, errors and omissions, products/completed operations, fire and contractual liability in the amount of One Million Dollars ($1,000,000) per occurrence and Two Million Dollars ($2,000,000) in the aggregate.

14.2.2 Teachers' professional liability insurance in the amount of One Million Dollars ($1,000,000) per occurrence and Two Million Dollars ($2,000,000) in the aggregate, separate and apart from the comprehensive general liability insurance limits.

14.2.9 Umbrella liability insurance (commonly referred to as excess liability insurance) in the amount of no less than Three Million Dollars ($3,000,000) per occurrence and Three Million Dollars ($3,000,000) in the aggregate.

(ECF No. 96-1, PIIC/KADF 001780-001781.)

The Franchise Agreement includes a provision relating to the franchisee's duty to indemnify the franchisor. Paragraph 21 of the Franchise Agreement provides:

. . . Franchisee will indemnify and hold Franchisor and Franchisor's members, managers, officers, directors and employees harmless against and from any and all claims arising either directly or indirectly from, as a result of, or in connection with the operation of the Franchised Business, as well as the costs, including attorneys' fees, of defending against them . . .

(ECF No. 96-1, PIIC/KADF 001799.)

III. Lewis Litigation

On or about October 27, 2017, Robert Lewis, individually and as next friend of minor child K.L., filed suit in the District Court of Brazoria County, Texas, against KA Broadway, KADF, and Essential. (ECF No. 37 ¶ 12.) See Robert Lewis, et al. v. KA Broadway, LLC, et al., No. 93954-CV (Dist. Ct. Tex. 2017). In that case, plaintiff Lewis alleged that the defendants were negligent and grossly negligent in actions or omissions that caused injury to K.L., who was injured while participating in an art activity when she was in daycare at the facility operated by KA Broadway. Id. ¶ 14.

At the time of the Lewis lawsuit, KADF and Essential were insured directly by Philadelphia Indemnity under a Commercial General Liability Policy with limits of liability of $1,000,000, as well as a Commercial Umbrella Liability Policy with limits of liability of $10,000,000. (ECF No. 37 ¶¶ 22-23.) KA Broadway was insured by Markel under a Commercial General Liability Policy with a limit of $1,000,000, as well as an Umbrella Liability Policy with a limit of $3,000,000. Id. at ¶¶ 18, 20.

The Commercial General Liability Policy issued by Markel to KA Broadway includes a Texas Professional Liability Coverage Endorsement. (ECF No. 94-3.) The Texas Professional Liability Endorsement modified the Commercial General Liability Coverage form and provides:

The following changes apply only to the coverage provided by this endorsement.

A. The following is added to Section I - Coverages:

MISCELLANEOUS PROFESSIONAL LIABILITY

1. Insuring Agreement

a. We will pay those sums that the insured becomes legally obligated to pay as “damages” because of injury arising out of a “wrongful act” of the insured or of any other person for whose acts the insured is legally liable, to which this insurance applies. ..

b. This insurance applies to injury only if:

(1) The injury is caused by a “wrongful act” that takes place in the “coverage territory”;

(2) The injury occurs during the policy period; and

(3) Prior to the policy period, no insured listed under Paragraph 1. of Section II - Who Is An Insured and no “employee” authorized by you to give or received notice of a “wrongful act” or claim, knew that the injury had occurred, in whole or in part.

D. Section III - Limits of Insurance is replaced by the following:

LIMITS OF INSURANCE

4. The limits of insurance provided by this endorsement are in addition to the limits of insurance provided by the Commercial General Liability Coverage Form

The coverage provided by this endorsement does not provide any duplication or overlap of coverage for the same claim or “suit”. Two or more claims arising out of a single “wrongful act” or a series of interrelated “wrongful acts” will be treated as a single claim.

(ECF No. 94-3, MIC00214, MIC00219.)

On or about September 5, 2019, KA Broadway, Essential, and KADF agreed to settle the Lewis litigation by paying a total sum of $6,000,000 to Mr. Lewis. (ECF No. 37 ¶ 34.) To achieve this settlement, Markel paid $1,000,000 in professional liability coverage under the Commercial General Liability Policy issued to KA Broadway and $3,000,000 from the Umbrella Policy issued to KA Broadway. Id. ¶ 26. Philadelphia Indemnity paid $1,000,000 in general liability coverage under the Commercial General Liability Policy issued to...